Government Database Danger

Government databases full of sensitive personal information pose a growing threat. When the government amasses tax returns, banking transaction data, health records, voter information, and other items, it exposes us to dangers from hacking and leaking. Experience shows that federal employees are sometimes—maybe often—sloppy, politically biased, self-interested, and vulnerable to bribery.

The Daily Caller summarizes an apparent leak by an employee of the IRS, an agency which is an ideal target for hackers and leakers. The article has to do with the tawdry Cohen affair, but it shows the ease with which a single bureaucrat can leak data to muckrakers and journalists.

An analyst with the Internal Revenue Service was charged Thursday with leaking the financial records of former Trump attorney Michael Cohen.

An affidavit submitted in the case reveals that John C. Fry, the analyst, placed several phone calls to attorney Michael Avenatti before and after he accessed Suspicious Activity Reports (SARs) that had been filed by Cohen’s banks with the Treasury Department.

Avenatti, an attorney for Stormy Daniels, had posted a dossier of Cohen’s financial reports on May 8, 2018.

… According to an FBI agent’s affidavit, Fry first accessed the IRS’s database of SARs on May 4, 2018 and downloaded five documents related to Cohen. “Immediately” after downloading the reports, Fry called a phone number associated with Avenatti, the agent said.

Minutes after that phone call ended, Fry conducted several more searches of Cohen’s records.

… The affidavit, signed by Special Agent Linda Cielsak, also detailed contacts between Fry and New Yorker reporter Ronan Farrow, who wrote an article on May 16, 2018 about Cohen’s financial records. Farrow quoted Fry anonymously, and asserted that the IRS agent leaked the Cohen records out of concern that they had been improperly removed from the IRS’s databases as part of what he believed to be a cover-up.

It was later reported that Cohen’s records had been removed from the general database because they were part of ongoing investigations, not because of a cover-up.

Lessons from Rome on Executive Power and Restraint

Recent events have unnerved many Americans about the political problem of executive power. Though it seems not to bother the vast majority of citizens, there has been at least some recognition in the public conversation that the mere possibility that a personage like Donald Trump could get elected president is precisely why a system of ever-expanding executive power, such as ours, is dangerous. But the truth is, this concern has been percolating since September 11, 2001. Both Bush and Obama left the office more powerful than they found it. And that makes perfect sense: if history shows us anything, it’s that war centralizes power – often into the hands of a single person.

But as the 2020 campaign picks up, it showcases that the expansion of executive authority isn’t relegated to war powers. While Trump does his best impression of a 19th century European demagogue, Democrats are promising citizens everything to the sun and back in language that seems to presume god-like capacities in the office of the president. Unfortunately, talking points on circumscribing executive power make for an unappealing stump speech.

It is therefore worthwhile to reflect on the reason why America’s political heritage features strenuous efforts to protect against kingly usurpers. The Founding generation looked to Rome for lessons. I was struck by this passage from a book by historians Joseph R. Strayer and Dana C. Munro, a succinct history on the expansion of executive power in ancient Rome:

Rome had once been a republic, ruled by an aristocratic Senate whose power could be checked only by uprisings of the city mob. In the first century B.C. this political system caused so much disorder that the citizens of Rome allowed power to be concentrated in the hands of one man - a boss or a dictator. Octavian, the last of these bosses, became Augustus, the first emperor. His powers, however, were not much greater than those of a strong American president. He was commander of the army and head of the administration; he made policy and proposed laws, but he was supposed to act with the advice of the Senate. Augustus’ successors, however, assumed much more power. Frequent civil wars and the necessity of protecting the frontiers made their military functions more important and decreased the power of the Senate. Then came a long period of anarchy in the middle of the third century. When a strong emperor, Diocletian, finally emerged in 285, the condition of the Empire was so bad that every one acquiesced in his assumption of absolute authority. Diocletian and his successors named all officials and levied taxes at will. They were the supreme judges and court of last appeal of the Empire; they had the power of life and death over every citizen. It was an accepted maxim that “the will of the prince has the force of law, since the Roman people by law have transferred to their prince the full extent of their power and sovereignty.”

Notwithstanding how eerily familiar that all sounds, I’m not convinced that we’re condemned to a similarly despotic fate. But as the political scientist Christopher J. Fettweis has recently pointed out, an added pressure in this direction comes from the fact that the United States, as in the case of Rome, is for all intents and purposes a unipolar power (whatever they say these days about the return of multipolarity). Like Rome at the height of its imperial glory, U.S. power in the international system today is highly asymmetrical. It’s foreign policy is preoccupied not with overcoming existential peril from proximate peer belligerents intent on total war, but with chasing remote (and sometimes imaginary) threats in the distant reaches of the periperhy. Unchecked international power carries some of the same hazards as unchecked power in the domestic realm. Look no further than the Trump administration’s spurious citations of the 2001 and 2002 Authorization for the Use of Military Force to legitimate ongoing, and potentially future, wars across the Middle East. Prudence and the Constitution would seem to obligate Congress to repeal, and not replace, these outdated authorizations.

Luckily, as Fettweis details at length through the example of Roman Emperor Hadrian, leaders always have the choice of retrenching and exercising restraint: “By keeping its threats in proper perspective, the United States could recognise that its security does not demand robust international military action. By restraining itself, the United States could demonstrate to the world that force should be a last resort, even for the strongest, most capable state in history, and thus do more to promote peace than all its misguided attempts at global policing. And it would waste far less blood and treasure in the process.”

Here’s hoping.

Little Political Downside for Eliminating CDBG

The Trump budget is slated for release March 11th. Although there are many decisions to make, the most challenging choices will likely be regarding what to cut.

Last year, the White House proposed a variety of cuts, as well as some spending increases. Notably, the White House proposed eliminating Community Development Block Grants (CDBG), along with a variety of other small Department of Housing and Urban Development (HUD) programs. Perhaps unsurprisingly, the mere suggestion generated spirited resistance from local policymakers and nonprofits that benefit from the program, as well as certain policy shops in D.C.

CDBG is a modern urban renewal program where HUD allocates funding and state and local politicians decide what to do with it. The program allows state and local politicians to divide federal revenues among so-called community development projects. The various businesses and politicians that benefit form an informal CDBG lobby, which has little interest in the efficacy of the program, but a lot of interest in the program enduring from year to year.

Ultimately, Congress passed on the White House’s suggestion to eliminate the program last year. If at any point Congress did consider cutting it they must have decided that the negative attention was not politically worth it.

But when it comes to CDBG, Congressional Republicans may have little to lose politically in eliminating the program. After all, CDBG spending is poorly targeted to Republican voters. And although some CDBG spending is located throughout the United States, the big dollar spends tend to be concentrated in urban, coastal areas that don’t vote Republican.

Figure 1. CDBG spending by location, 2013-2018

CDBG spending by location, 2013-2018Data Source: U.S. Department of Housing and Urban Development

As evidenced by the map, CDBG spending is by far heaviest in coastal areas. In fact, nineteen of the top twenty largest-value project grants between 2013 and 2018 were targeted to politically liberal areas including New York City, Detroit, upstate New York, New York state, Eugene, Oregon, Washington D.C., Houston, Chicago, Los Angeles, and California.

This outcome is by design. HUD allocates CDBG money using formulas and rules which prioritize funding to locations with higher city, county, and state populations, older housing, and lags in population growth, among other things. These characteristics line up well with urban coastal areas that vote blue.

Given recent Republican reforms to the mortgage interest deduction and state and local tax deduction (SALT) –both policies that disproportionately benefit politically liberal areas on the coasts– it seems there would be some appetite to make similar changes to CDBG and reduce redistribution to political opponents’ districts. CDBG is also a direct spending program rather than a tax break, and Republicans have signaled opposition to direct federal spending programs on the basis of small government principles in the past.

If Republicans want to direct federal money to low-income people then there are many more direct and effective ways to do that. Federal CDBG funds could be repurposed accordingly.

Research assistance provided by Robert Orr.

Are Child-Care Subsidies Actually “Good For The Economy”?

Commentators are already implying Democrat Elizabeth Warren’s new universal child-care plan will be “good for the economy.”

Moody’s Analytics reckons subsidies will induce more mothers into the labor market, raising growth rates by 0.08 percent per year over a decade. Others say that cheaper out-of-pocket child-care will reduce time spent out of the labor force by working mothers, and this greater maternal labor market attachment will boost recorded productivity and women’s earning potential. Combined, it is said the universal program will raise the economy’s productive capacity and thus recorded level of GDP.

Such claims about heightened measured economic activity are not crazy. But previous research for England has found that the effects are unlikely to be as great as proponents imagine.

The roll-out of free child-care for three-year-olds there induced 12,000 extra mothers into work (coming at an extremely high cost of around $84,900 per job). This suggests government subsidies resulted in substantial crowd out of other informal or paid care, meaning overall the substitution effects (the higher effective wage inducing more labor supply) only narrowly exceeded the income effects (the higher effective wage reducing labor supply as people took more leisure with their child-care cost savings). Along the way, there was substantial “deadweight” - subsidies going to people who would work or stay attached to the labor market anyway.

But let’s suppose the proponents of Warren’s scheme are correct about their estimates of bigger effects here. Does any boost to measured GDP mean child-care subsidies are “good for the economy”? The answer is “probably not.”

GDP should not be confused with general economic welfare. Economists generally start from the view that free action in the economic sphere - people acting on their own preferences - maximizes economic welfare except in cases when there are market failures present. It is not clear what markets failures exist in relation to female labor force participation and child-care. That means subsidies to make child-care free, or nearly free, mask the opportunity cost to the parent of putting their kids in daycare in a way that harms broader economic welfare.

The idea that non-attachment to the labor market is a market failure needing correction is particularly peculiar.

Every day we freely opt not to maximize time at work or our productivity. These are choices that come with a significant opportunity cost, not least of time, after all. Some men and women obtain more “utility” from dedicating themselves to family life. Others may decide to work in vocational jobs, or part-time, or on activities that give them substantial non-pecuniary satisfaction, even if this does not maximize their productivity or wages. Some people decide not to invest in their own human capital to boost their earnings potential; others to care for an elderly relative nearing their end of life.

Why should government act to incentivize greater parental attachment to the labor market through child-care subsidies but not, say, incentivize French teachers to train to work on Wall Street or as engineers?

If failing to reach your labor market potential is a cause for intervention, then what about subsidies to other groups, such able-bodied retirees or non-working partners in single parent households with no children?

If child-care costs are too high to allow parents to be as productive as possible, then what about out-of-pocket housing, transport or training costs that prevent other people from working where they would be most productive?

Once you think about it, the idea that the role of government is to maximize labor force attachment and recorded productivity is bizarre – with huge implications that justify a whole host of new interventions.

And that would only be looking at one part of the equation too. Large new subsidies would ultimately have to be financed by raising taxes, as Warren acknowledges. Raising them on incomes for some would reduce their return to work and so labor force participation and human capital investment. Raising them on wealth, as Warren suggests, will reduce the return to saving and investment – which could reduce productivity. It is not clear what the net effect of this would be overall.

So is there ever a case for child-care subsidies under a “neutral” framework that allows preferences to be realized? Perhaps.

In some cases, the provision of means-tested welfare benefits without work requirements may reduce the incentive for parents to work. Targeted assistance to rebalance this disincentive may be desirable for those on low incomes, and indeed already exists in the form of the earned income tax credit.

More broadly though, if governments want to act neutrally in relation to children they should either operate no subsidies at all or else support families with children through tax allowances or distributions available to all children.

That way, parents get to decide what is best for their child without warping the financial incentives and structure of the child-care sector itself.

A Conversation with Marietje Schaake (Part 2)

Marietje Schaake is a leading and influential voice in Europe on digital platforms and the digital economy. She is the founder of the European Parliament Intergroup on the Digital Agenda for Europe and has been a member of the European Parliament since 2009 representing the Dutch party D66 that is part of the Alliance of Liberals and Democrats for Europe (ALDE) political group. Schaake is spokesperson for the center/right group in the European Parliament on transatlantic trade and digital trade, and she is Vice-President of the European Parliament’s US Delegation. She has for some time advocated more regulation and accountability of the digital platforms.

You can read Part 1 of this conversation here.

FR: I want to focus on the small players. People concerned about regulation say that if you only focus on the big players like Facebook, Google or Twitter and how to regulate them, you will make it very difficult for the small players to stay in the market because transaction costs and other costs connected to regulation will kill the small companies. Regulation becomes a way to lock in the existing regime and market shares because it takes so many resources and so much money to stay in the market and compete. And new companies will never be able to enter the market. What do say to that argument?

MS: It depends on how the regulations are made but it is a real risk. It is the risk of GDPR (general data protection regulation, ), and with filtering as suggested now. The size of a company is always a way to assess whether there is a problem, and I think we should do the same with these regulations so that there could be a progressive liability depending on how big the company is or there could be some kind of mechanism that would help small or medium size companies to deal with these requirements. Indeed, it is true that for companies that have billions of euros or dollars of revenue, it’s easy to deploy lots of people. A representative of Google yesterday (at a conference in the European Parliament) said they have 10.000 people working on content moderation. Those are extraordinary figures, and they are proportionate because of the big the impact of these companies, but if you are a small company you may not be able to do it, and this is always an issue. It’s not the first time we have been dealing with this. With every regulation the question is how hard it is for small and medium enterprises.


FR: The challenge or threat from misinformation is also playing a big role in the debate about regulation and liability. We will soon have an election in Denmark. Sweden recently had an election where there was a big focus on misinformation, but it turns out that misinformation doesn’t work as well in Denmark as in the US or some other countries because the public is more resilient. Why not focus more on resilience and less on regulation so people have a choice? We are up against human nature, these things are triggered by tribalism and other human characteristics. To counter it you need education, media pluralism, and so on.

MS: I think you need to focus on both. First, what is choice if you have a few near monopolies dominating the market? Second, how much can we expect from citizens? If you look at the terms of service for a common digital provider that you and I use, they are quite lengthy. Is that a choice for a consumer? I think it’s nonsense. That’s one thing. Moreover, we are lucky because we are from countries where basic trust is relatively high, media pluralism exists, there are many political parties, and our governments will be committed to investing in education and media pluralism, knock on wood. How will this play out in a country like Italy where basic trust is lower and where there is less media pluralism, how are ever going to overcome this with big tech, so I think there is a sufficient risk if you look at the entire European Union, Hungary and other countries, that governments will not commit resources to what is right and they will create the kind of resilience that our societies already have. In the Netherlands trust in the media is among the highest, and it’s probably also because of a certain quality of life and certain kind of freedom that people have enjoyed for a long time. Even in our country you see a lot of anti-system political parties rise, so it’s not a given that this balance will continue forever because it requires public resources to be spend on media and other factors. So I think both are very important and I don’t want to suggest that we should not involve people but I don’t know if we can expect of the average citizen to have the time and the ability to have access to information it would take to make them resilient enough on their own.

FR: Do you think a version of the German ”Facebook law” with the delegation of law enforcement to the digital platforms will make it to the agenda of lawmakers in the European Parliament?

MS: No, I think there are too many flaws in it. It’s bad. Some form of responsibility on behalf of companies to take down information will exist, but I hope the law will be the primary tool. The companies will take down content measured against the law with the proper safeguards and proportionality. If there are incentives like big fines to be overtly ambitious in taking down information, that’s a risk. But on the other hand, the platforms as private companies already have all the freedom they want to take down any information with a reference to their terms of use. We are assuming that they are going to take the law as guidance, but nothing indicates they will. In fact, Facebook doesn’t accept breastfeeding pictures, so they are already setting new social norms. A new generation may grow up thinking breastfeeding is obscene. The platforms are already regulating speech,  and people who are scared about regulation should understand that it is Mark Zuckerberg who is regulating speech right now.

FR: Recently the EU praised the Code of Conduct to fight hate speech online that they signed with the tech companies in 2016. A lot of speech has been taken down according to the EU: 89 percent of flagged content within 24 hours in the past year, but my question is: Do we know how much speech has been taken down that should not have been taken down?

MS: No, we don’t know.

FR: That will concern those who value free speech. You have the law and you have community standards and then you have a mob mentality, i.e. the people who are complaining most and screaming louder will have their way and they will set the standards. So if you organize people to complain about certain content, it will be taken down to make life easier for Facebook and Twitter and Google.

MS: Yes.

FR: So you agree that it’s a concern?

MS: It’s a huge concern. If you believe in freedom of expression which I know you do, and I think it’s one of the most important rights and so many people have been fighting for it, why will we give it up? Just a little bit of erosion of freedom of expression is a huge danger and therefore to put responsibility on these companies to take down content without a check against the law is a risk, to allow these companies to set their own terms of use that can be at complete odds with the law and also with social norms (consider the restrictions on the breastfeeding, on Italian Renaissance statues as pornographic, or on the photo of a naked girl hit by napalm in Vietnam). Let me give you an example from my own experience.

I gave a speech here in parliament, it was a very innocent and clearly political speech, but it was taken down by YouTube. They said it was marked as spam, which I don’t believe. I have never posted anything that was labeled spam. What I think happened was that my speech was about banning goods and trade that can be used for torture and the death penalty. I think that the machine flagged torture because torture is bad, but a political debate about torture is not bad. I took a screenshot of the fact that YouTube took it down, posted it on twitter and said “wow!, see what happened”, and they were on the phone within two hours, but that’s not the experience most people (including the people I represent) will have. That’s the danger.  We also know examples of Russians having flagged Ukrainian websites and then they were taken down. And if that happens to a political candidate in the last 24 hours before an election it could be decisive, even if the companies say they’ll restore it within 24 hours.

FR: I spoke to a representative from one of the tech companies who said that when they consult with German lawyers whether something is legal or not, they will get three different answers from three different lawyers. He said that his company would be willing to do certain things on behalf of the government, but it requires clear rules and today the rules aren’t clear.

MS: Right, so now you see incentives coming from the companies as well. It’s no longer working for them to take on all these responsibilities whether they are pushed to do so or just asked to do it. The fact that they have to do things is also a consequence of them saying “don’t regulate us, we can fix this.” I think it’s a slippery slope. I don’t want to see privatized law enforcement. What if Facebook is bought by Alibaba tomorrow? How happy would we be?

FR: I want to ask you about monopolies, competition and regulation. If you go back to 2007 MySpace was the biggest platform, then it was outcompeted by Facebook. As you say, there are concerns about the way Facebook manages our data and its business model with ads and sensational news driving traffic and getting more eyeballs. But why not let the market sort things out? If there is dissatisfaction with the way Facebook is running their business and our data, why not set up a competing company based on a different business model that will satisfy customers’ need?

MS: States don’t built companies in Europe.

FR: I was having private companies in mind. Netflix has a subscription model, wouldn’t a digital platform like Facebook be able to do the same?

MS: I think it would be difficult now, because there is a lock-in effect. In Europe we are trying to provide people with the ability to take their data out again. If you use gmail for 12 years, your pictures, your correspondance with your family and loved ones, with your boss and colleagues, it could all be in there, and you want to take all those data with you. It’s your correspondence, it’s private, you may need it for your personal records. You may have filed your taxes and saved your returns and receipts in the cloud. If you are not able to move that data to another place, then competition exist only in theory. Also, if you look at Facebook, almost everybody is on Fcebook now. For somebody else to start from scratch and reach everybody is very difficult. It’s not impossible but it’s difficult. And for those models to make money the question is how much are customers willing to pay as required by the subscription model?

Facebook and Google already have so much data about us. Even if I am not on Facebook, but all my friends are, then a sketch of my identity emerges because I am the empty spot between everybody else. If people start posting pictures of a birthday party with the 10 people who are on Facebook and the one person that is not, and then somebody says I can’t wait to go on holiday with Marietje or whatever, then at some point it would be clear who I am, even if I am not on the platform, so they already know so much and they already has access to so much data about people’s behaviour that effectively it will be very hard for any competitor to get close, and we have seen it in practice. Why hasn’t there been more competition?

FR: Do you compare notes with US lawmakers on this? And do you see that your positions are getting closer to one another?

MS: Yes.

FR: Can you say a bit more about that?

MS: First of all the talk has changed. The Europeans were dismissed as being jealous of US companies and therefore proposing regulations, i.e. we were proposing regulations in order to destroy US competitors. I don’t think that’s true, but this stereotypical view has been widespread. Also, we were being accused of being too emotional about this, so we were dismissed as being irrational which is quite insulting, but not unusual when Americans look at Europeans. I think we are in a different place now with a privacy law in California, with New York Times editorials about the need for tougher competition regulations, with senators proposing more drastic measures, with organizations like the Center for Humane Technology focusing om time well spent, and with Apple hiring people to focus on privacy issues. Recall also conversations about inequality in San Francisco. We have a flow of topics and conversations that suggest that the excessive outcomes of this platform economy need boundaries. I think this has become more and more accepted.  The election of Donald Trump was probably the tipping point. We learned later how Facebook and others had been manipulated.

FR: You said that the problem with these companies is that they have become so powerful and therefore we need to regulate them. Is the line between public and private is blurred in Europe compared to the US? You focus on power no matter whether it’s the government or a private company when it comes to protection of free speech, while in the US the First Amendment exclusively deals with the government. Do you see that as a fundamental distinction between Europe and the US?

MS: There are more articulated limitations on speech in Europe: for example, Holocaust denial, hate speech and other forms of expression may be prohibited by law. I think there is another context here that matters. Americans in general trust private companies more than they trust the government, and in Europe roughly speaking it’s the other way round, so intuitively most people in Europe would prefer safeguards coming from law than trusting the market to regulate itself. That might be more important than the line between private and public and the First Amendment compared to European free speech doctrine.

Cross-posted at Techdirt…

Unanimous Supreme Court Upholds Right to Be Free of Excessive Fines

It’s gratifying that the Supreme Court unanimously agreed that the Eighth Amendment’s Excessive Fines Clause applies to the states, meaning that states can’t fine you in a way that’s wholly disproportionate to the offense you commit. As one of the long-established natural rights in the Anglo-American legal tradition, there’s no reason it wouldn’t be and the debates over the Fourteenth Amendment’s ratification support this conclusion. (Here’s Cato’s brief in Timbs v. Indiana.)

At the same time, it’s disappointing that Justices Neil Gorsuch and Clarence Thomas were the only ones who explained, in separate concurrences, that the Fourteenth Amendment’s Privileges or Immunities Clause is the more constitutionally faithful way of extending rights as against state infringement. (Justice Ruth Bader Ginsburg’s majority opinion, joined by all but Justice Thomas, used the Due Process Clause.)

We’ll have to wait for some more difficult/less clear case to see if anyone else joins that originalist refrain. For practical purposes, it may not matter which clause of the Fourteenth Amendment provides the mechanism by which the Excessive Fines Clause is applied to the states. But it certainly matters for unenumerated rights (those not listed in the Bill of Rights), the jurisprudence regarding is confusing and controversial. If the Fourteenth Amendment ratification debates elucidate which such rights are covered under which clause, that would be important.

For that matter, it could matter in cases where the meaning of even an enumerated right was different in 1868 (at the Fourteenth Amendment’s ratification) than in 1791 (when Bill of Rights was ratified). Take the right to keep and bear arms, which the Supreme Court extended to the states in McDonald v. Chicago (2010). One of the key motivations behind the Second Amendment was the Founders’ concern about government tyranny. After the Civil War, however, the right to armed self-defense took on a different dimension as the Fourteenth Amendment’s enacters were quite concerned about the disarmament of freed slaves, as well as of other people who held unpopular opinions during Reconstruction. Justice Thomas – who provided the necessary fifth vote in McDonald – pointed this out in his solo concurrence.

Moreover, because using the Privileges or immunities Clause is more textually sound, the worst that could happen from moving away from “substantive due process” analysis is that there’s no change – but the upside is that only those rights supported by the original public meaning of constitutional text would be protected. That’s the dynamic that Josh Blackman and I described in the run-up to McDonald as “Keeping Pandora’s Box Sealed.” 

And now we have two justices for that view, as Josh and I predicted in an early draft of our forthcoming George Mason Law Review article “The Once and Future Privileges or Immunities Clause.” Before final publication, we’ll have to tweak some language regarding the “prediction” there now that the Court has ruled and we know what Gorsuch thinks, but you can see our  discussion at a Fourteenth Amendment conference hosted by Scalia Law School and the Institute for Justice last October. It’s unfortunate that Justice Brett Kavanaugh didn’t join either of his colleagues’ concurrences; he had no occasion to rule on the Fourteenth Amendment on the D.C. Circuit – nor do any of his scholarly writings touch on this area – so his vote today could indicate that he simply doesn’t want to revisit this area of law. Or, of course, it could mean that he didn’t want to rock the boat in a case where it doesn’t matter. 

In any event, with two justices and near-complete (and cross-ideological) agreement in the legal academy, there is real potential for movement on the Privileges or Immunities Clause – even if that potential hasn’t yet been realized.

Jones Act Lobby Hits the Panic Button

Puerto Rico’s request for a limited Jones Act waiver to permit the importation of liquefied natural gas (LNG) from the U.S. mainland has touched off what can only be described as a near panic among the law’s supporters. Members of the House Transportation and Infrastructure Committee recently dashed off a letter to the administration expressing opposition to the move. The American Maritime Partnership and other pro-Jones Act special interests are currently urging supporters of the law to send “pre-formatted” emails to Congress. And this past weekend Matthew Paxton, the president of the Shipbuilders Council of America, published an op-ed blasting Puerto Rico’s waiver application.

Alarm bells are plainly ringing, and the Jones Act lobby is willing to do—and say—whatever it takes to prevail in this pivotal battle over the law’s future. That, at least, is the main takeaway from Paxton’s recent op-ed, which is a striking display of misdirection, half-truths, and overall paucity of argument.

Paxton begins the piece by invoking President Trump’s favored catchphrases of “America first” and “buy American and hire American.” Yet the entire point of Puerto Rico’s waiver request is that the Jones Act prevents the territory from buying American. Remember the issue here: Puerto Rico’s desire to purchase cheap natural gas from the U.S. mainland for electricity generation is frustrated by a lack of Jones Act eligible ships to transport it.

That the administration may grant a waiver to address this situation, Paxton continues, demonstrates that “special interests are prevailing over national interests, as deep-pocketed supporters in the oil and gas industry – those who epitomize the very ‘swamp’ that he vowed to drain – are swaying the debate.” Yes, you read that right—the Jones Act lobby is portraying itself as the victim here.

There’s a very simple test for assessing whether a group represents a swamp-dwelling special interest: are they trying to reach into your pockets? In this case, we have the Jones Act lobby which favors federal intervention to reduce competition and force Americans to pay inflated prices for transportation services. On the other side, meanwhile, are opponents of the law who do not ask for a single dollar from the federal government and, in the case of Puerto Rico, merely seek the opportunity to purchase a U.S.-made product. Readers can decide for themselves which is more at home in the D.C. muck.

Paxton then gets into the meat of his argument:

These special interests claim there are no ships in the world authorized to carry LNG from the U.S. to Puerto Rico.  This is patently wrong.  Legislation passed in 1996 allows for LNG carriers built anywhere before that year to transport American LNG to Puerto Rico by being brought under U.S. flag.  There are more than 50 of these ships in service throughout the world today, and a number of them are not on long-term contracts.  They are not serving in the Jones Act trade because there is not yet a firm market.

The loophole to which Paxton refers is far less noteworthy than what he lets on. While there is some number of LNG carriers in the world theoretically able to take advantage of this provision (44 according to the International Gas Union and 37 per the Government Accountability Office), the law still requires these vessels to be U.S.-registered and U.S.-crewed. This has not happened, is unlikely to ever happen, and thus U.S. LNG still effectively remains off limits for Puerto Rico. 

Paxton continues:

If the President goes through with waiving the Jones Act for 10 years for the purposes of transporting LNG along our nation’s coasts and to Puerto Rico, then his will be the administration that undermines this long-standing American law and does irreparable damage to the all-American industry it supports.

Waiving the Jones Act as planned will wipe out an emerging American LNG transportation market while signaling to all that the law will not be reliably enforced under this administration. This will have a devastating ripple effect that indubitably will serve to dry up U.S. investment in shipbuilding. Our situation will resemble that of Australia, Canada, and the United Kingdom – all struggling to revive their once-robust shipbuilding industries.

As a result, the U.S. will soon be forced to outsource shipbuilding to China and Korea. This will mean the shuttering of American shipyards and the elimination of hundreds of thousands of American jobs. It also will mean an end to our ability to respond with a domestic shipbuilding capacity in times of major war.

Let’s remember the facts of the case: the waiver request is for the ability to ship U.S. LNG to Puerto Rico alone and says nothing about “transporting LNG along our nation’s coast.” Should the Trump administration grant Puerto Rico’s waiver request not a single U.S. ship will be displaced, nor a single mariner lose their job. No shipyard will lose any business as there are currently no LNG carriers on order (and given the frightening cost of building such a carrier in a U.S. shipyard, none likely for the foreseeable future).

In fact, if anything the waiver would likely bolster the U.S. maritime sector. Cheaper energy costs for Puerto Rico means more dollars in the pockets of its residents and more money to spend on imports from the U.S. mainland. Those imports, in turn, would be carried by U.S. ships crewed by U.S. mariners.

The reality is that U.S. shipbuilding has far more to fear from the status quo than any waiver that might be granted involving a type of ship which hasn’t been domestically made since 1980. Under the Jones Act’s watch the U.S. shipbuilding industry has seen approximately 300 shipyards close since 1983. In contrast, other forms of transportation not subject to Jones Act-style protectionism such as autos and airplanes see U.S. firms playing a leading role.

As for the outsourcing of U.S. shipbuilding, that ship in many ways has already sailed. The few large oceangoing ships built today typically use foreign designs and foreign components such as the engine. Even some of the shipyards themselves, such as VT Halter and the Philly Shipyard, are foreign-owned. The idea that the Jones Act is all that stands in the way of further shipyard closures, meanwhile, betrays a lack of confidence in the American worker and American ingenuity.

Regarding the wartime utility of American shipyards, there are only three major commercial shipyards in the United States (arguably four if Keppel AmFELS, currently said to be building a containership for Pasha Hawaii, is included). Of these shipyards, only one—General Dynamics NASSCO—also produces ships for the U.S. military. All of the remaining major shipyards in the United States exclusively produce naval vessels and do not compete in the Jones Act market.

Moving along:

China is already a world leader in global shipbuilding. The Chinese crave the opportunity to take over our small but vital commercial market, which they know will hasten the end of American shipbuilding. Then we will become dependent on ocean transportation from a nation the Pentagon recently labeled “certainly an adversary of the United States.”

In other words, after a century of the Jones Act making America strong, waiving it will make China even stronger while bolstering their ability to threaten our economic and national security.

This is a red herring. Puerto Rico’s application for a Jones Act waiver to import U.S. LNG has nothing to do with China, and Paxton’s invocation of the country is a naked attempt at distracting from the issue at hand. Regarding dependence on foreign countries for ocean transportation, this is nothing more than a description of the status quo with over 98 percent of U.S. foreign trade conducted using ships registered under foreign flags.

If a national security case can be made for preventing Americans from purchasing Chinese ships for use in domestic transport, then Paxton and others should do so. But the Jones Act is a blanket prohibition against the purchase of any foreign vessel used in domestic transport, including from treaty allies such as Japan, South Korea, and NATO members. Concerns about China are no reason to prevent the purchase of ships from other countries.

Because the Jones Act was instituted as a national security measure, any waiver requires a national defense emergency to be declared by the Department of Defense or the Department of Homeland Security. But no such thing is currently established in the administration’s justification. This would be a gross and blatant violation of the law.

Paxton references the “administration’s justification” but the Trump administration hasn’t justified anything yet, with no decision made on the matter. And absent such a justification with its attendant evidence and arguments he can’t possibly know whether such a waiver would violate the law.

Let’s be very clear about what is taking place. Paxton, along with the rest of the Jones Act lobby, is terrified of Puerto Rico’s application for a limited Jones Act waiver to import U.S. LNG. And they should be. For nearly 100 years Americans have operated under the Jones Act’s strictures, never knowing a world in which this law did not apply. But if this waiver is approved they could catch a tantalizing glimpse of cheap domestic ocean transport and the possibilities it could unlock. This, in turn, would likely raise questions about other aspects of the U.S. economy that are being shackled by the Jones Act and the wisdom of keeping the law in place.

Things are about to get interesting.